Siemens, Europe’s largest engineering group, on Thursday said it planned an initial public offering of its VDO division, one of the world’s largest car parts suppliers with annual sales of about €10bn ($13bn), and confirmed it would buy UGS, the privately-held US industrial design software group, for $3.5bn.
The moves were announced as Siemens, which has been beset by bribery allegations, reported a 16 per cent fall in first-quarter net profit to €788m, which included the costs of a record €397m fine from the European Commission for its “leadership role” in a long-running price-fixing cartel.
Operating profit rose 51 per cent to €1.63bn, above analysts’ forecasts, as orders rose 4 per cent to €24.6bn.
Shares in Siemens jumped more than 6 per cent to €83 in early Frankfurt trading, a 52-week high.
The VDO and UGS moves highlight the determination of Klaus Kleinfeld, Siemens’ chief executive, to push ahead with strengthening and restructuring the businesses despite being enmeshed in harmful corruption allegations.
UGS, a US company specialising in product lifecycle management, is currently owned by US private equity groups Silver Lake, Bain Capital and Warburg Pincus.
The private equity consortium bought UGS from Electronic Data Systems in a $2.1bn deal in March 2004. This marks one of the first exits from the latest cycle of software investments by private equity firms. Before agreeing to a sale, Warburg, Bain and Silver Lake had been considering an IPO of UGS.
On VDO, Siemens said it wanted to float more than 25 per cent of the group, but would keep a majoirty stake. No timetable was given.
However, news of the UGS acquisition and the VDO float is likely to be overshadowed on Thursday by a torrent of criticism from investors over a €420m corruption scandal and under-performing businesses at the conglomerate’s annual meeting in Munich.
Several foreign shareholders will abstain from giving approval to the actions of the entire management board and some non-executive directors, including chairman Heinrich von Pierer.
“They should postpone the votes and really it would have been better to have delayed the entire meeting to clear things up,” one large Anglo-Saxon shareholder said.
Allegations of knowledge of bribery have been made against several former and current top managers, all of whom strenuously deny it. Other large shareholders, particularly from Germany, will urge a quick clean-up of the corruption allegations but will back executives.
Siemens intends to appeal the Commission fines, calling them “totally exaggerated”. The 11 groups – including Mitsubishi Electric, Toshiba, Hitachi and Alstom – involved in the cartel were fined a total €751m, the largest-ever fine for a single cartel.
The Munich-based group denied the Commission’s “blanket accusation”, saying in a statement that price-fixing only took place in a “few projects” and only between October 2002 and April 2004.
ABB, the Swiss group, was also part of the cartel but escaped punishment because it blew the whistle on its co-conspirators. Brussels said ABB's fine would have amounted to €215m.
The Commission said it had punished Siemens more severely than others because of its size, market clout and the elevated role it performed in a cartel that carved up the market for gas insulated switchgear – a type of heavy electrical equipment used to control energy flows in the power grid.